RUSSEL METALS $21.58 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 61.7 million; Market cap: $1.3 billion; Dividend yield: 7.0%) is one of North America’s largest metal distributors, serving 39,000 clients at 53 locations in Canada and 12 in the U.S.
In the three months ended March 31, 2015, Russel’s revenue fell 2.2%, to $903.9 million from $924.0 million a year earlier. The company’s metal-services business saw its sales rise slightly, but the energyproducts division, which supplies pipes for oil and gas drillers, reported a 14% sales decline.
Earnings fell 36.2%, to $18.5 million, or $0.30 a share, from $29.0 million, or $0.47. Russel’s earnings fell faster than revenue because steel prices declined in the latest quarter. That cuts the company’s profit margins and causes it to suffer losses on its inventory.
Russel holds cash of $15.9 million, or $0.26 a share. Its $461.8 million of long-term debt is a reasonable 36% of its market cap. The stock yields a high 7.0%, and its dividend looks safe.
However, oil and gas clients supply about 35% of Russel’s revenue, which adds to its cyclical risk. The stock has dropped on investor concern that falling oil prices will keep slowing exploration and development, but its long-term outlook remains positive.
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